Chapter 2 Analysis of Industry and Competition

Transcription

1 Chapter 2 Analysis of Industry and Competition 1

2 Learning Objective To understand what constitutes industry and competition To Understand the evolution of industry and industry lifecycle To Analyse industry and competition, SWOT To Understand government policies for industry To evaluate Entry and Exit barriers To understand bargaining power of customers 2

3 Introduction to Analysis of Industry and Competition Industry is defined as a group of companies that produce similar products and services Companies in industry compete with each other to gain social, economic and competitive advantage Three broad categories of Industries- Old economy industries Traditional economy industries New economy industries 3

4 Old economy industries Includes the basic and core industries like steel, mining, coal and electricity Banking and Financial Services also form part of the core services The companies in this sector are growth engines of an economy 4

5 Traditional and New Economy Industries Traditional economy industries constitute of companies in the hotel, automobiles, aviation, consumer electronics and consumer durables New economy industries consists of IT and Internet companies The companies include IT, ITeS, e-commerce etc 5

6 Evolution of Industry Deep knowledge and understanding of the industry is important for formulation of any business strategy Changes in industry include shift in demographic forces, cultural change, social life style changes, economic changes, technological advancements etc Industry passes through key five stages of evolution viz. Introduction, Growth, Shake-out, Maturity and Decline 6

7 Introduction Stage Industry in its nascent stage at beginning to form Demand for industry s products is generally low as the product or service awareness Customers are actually first-time buyers and tend to be risk taking Industry generally seeks ways to improve the product and bring in distribution efficiencies as they learn more about the market 7

8 Growth Stage Once product is accepted by large customer base industry enters growth stage Market demand for the product and services increases More customers are acquired Profitable companies invest the profits into new technologies and facilities More competitors come up 8

9 Shake-out stage Industry growth is no longer rapid enough to support more competitors Weaker competitors go out of business Competitive positioning loses on account of high growth rate within the industry Small number of stronger players emerge as leaders and marginal competitors forced out of the industry 9

10 Maturity Stage Industry goes through consolidation stage, market demand is completely saturated Stronger players emerge and buy out small but good companies Weaker players exit from the industry Leader of the industry pursue product innovation, seek to expand into new markets, diversify into new business areas and some look for global expansion 10

11 Decline Stage When demand for an industry s product and services decreases Consumer begin to turn more advanced Higher quality products are offered Companies divest their business units and reinvent themselves Companies pursue new innovative products and services to sustain in the business 11

12 Lifecycle in Indian Context Lifecycle model of an industry is useful for strategic analysis Innovating strategies are happening in emerging industries under pubic private partnership model India is emerging on account of technological development International companies are attracted to India and setting up operations in the country 12

13 Analysis of Industry In an Industry, there are Leaders, Challengers, Niche Players and Visionaries Laggards Strategic tools are used to analyse the industry and benchmark 13

14 Analysis of Industry Leaders lead all the way with their vision, clear strategy and execution capability to stay ahead on the value curve Challengers give equal fight to stay in the reckoning Niche players create unique market place Visionaries always stay ahead and come up with innovative ideas Laggards who lack vision and strong execution capabilities 14

15 Porter s Five Forces Model Intensity of rivalry among incumbent firms Threat of new competitors entering the industry Threat of substitute products and services Bargaining power of the buyers Bargaining power of the suppliers 15

16 Competition Analysis Competitors of a company not only include players who sell same products, but also related industries vying for discretionary spending Hyper competition may lead to unsustainable business environment Marginal players exit industry in hyper competition scenario Competitive landscape is also impacted by entry of new players 16

17 Competition Analysis Diversity of competitors (Domestic and MNCs) impact the competition Switching costs are crucial for customers needs to change the product / service provider Certain companies create exit barriers in the industry 17

18 Entry barriers for competition Economies of scale Brand identity Product differentiation Capital requirements Switching Costs 18

19 Entry barriers for competition Access to distribution channels Cost disadvantages Government policy Strategic management process should take into consideration these factors impacting the successful entry of an organisation into the market place 19

20 Bargaining power of customers Customers generally pay the price for a product s value In high competition, customers gain bargaining power by selecting or rejecting a product Buyer s can lower industry s profitability by bargaining for higher quality or more services Buyers also gain bargaining power through knowledge of the product 20

21 Constraints of Porter s five forces model Based on assumptions of the industry organisation perspective on strategy as opposed to resource based perspective As complexity of industry increases, the ability to draw analytical inferences from the model decreases Model does not take into account ability of large industries to change the structure of the industry Porter s model assumes industry factors and not the firm s resources 21

22 Summary Focused on identifying the industry an organisation is operating in and the competition scenario for its products and services It involves an understanding the evolution of industry and industry lifecycle Customers gain bargaining power in competitive environment 22